Beijing has opened the door for private and foreign investment in mainland hospitals as it struggles to reform the health care sector.

A policy paper released yesterday after authorisation by the State Council allows so-called social capital - non-state funds - to launch and manage for-profit and not-for-profit medical services.

Individuals with accepted qualifications will be allowed to set up their own clinics.

Overseas capital, including that from Hong Kong, Macau and Taiwan, will be treated similarly on the mainland, the paper, posted on the central government's website, says.

Foreign and private hospitals only take up a small share of mainland health care provision because of ambiguous regulations. Yesterday's paper marks an important change in government thinking by welcoming private and foreign capital.

Overseas medical institutions and businesses will be allowed to form joint ventures with Chinese medical institutions and businesses, with limitations on overseas share ownership 'gradually lifted'. The document did not specify the existing limitations on the percentage of ownership allowed in joint-venture medical institutions.

The 25-point paper said the joint ventures could be of the for-profit and not-for-profit kinds.

Chinese overseas joint venture and co-operative medical institutions will have to obtain approval from provincial-level health authorities and commerce authorities.

Those that provide traditional Chinese medicine and other forms of traditional medical services will also have to obtain the backing of provincial-level traditional Chinese medicine administrations.

Medical institutions wholly owned by overseas investors will have to follow the same procedures.

Privately owned and joint-venture hospitals will be entitled to the same tax policies, utility supplies and services, while following government regulations on services and medicines.

Qualified private and joint-venture hospitals will be allowed to contribute their service to the national medical insurance programme which, in the mainland context, means that they can compete with state hospitals for patients from the salaried classes.

The policy paper also advises local health authorities not to restrict the private hospitals' area of service without reason. It says private hospitals are welcome to participate in the reform of existing state-owned hospitals and revealed the government's intention to run fewer state-owned hospitals.

In explaining the background of the new policy paper, officials from the State Council's medical reform project confirmed that diversified ownership was one of the main principles guiding medical reform.

The officials were quoted as saying that private hospitals already existed on the mainland, making up some 36 per cent of all medical institutions, but they had around 5 per cent of all hospital beds.

The officials said the government would encourage private hospitals to expand through good service and management.

The State Council built a new leadership group for the medical reform process in September 2006, comprising 11 state agencies and co-chaired by the head of the National Development and Reform Commission and the health minister.

Bed space

Private hospitals make up 36 per cent of all medical institutions, but they have only this percentage of all hospital beds: 5%